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What is the “Earned Income Tax?”
Earned Income is defined as compensation as determined under section 303 of the act of March 4, 1971 (P.L. 6, No.2), known as the Tax Reform Code of 1971, and regulations in 61 PA. Code Pt. I subpt. B. Art. V (relating to personal income tax). Employee business expenses are allowable deductions as determined under Article III of the Tax Reform Code of 1971. The amount of any housing allowance provided to a member of the clergy shall not be taxable as earned income. Net profits are defined as the net income from the operation of a business, profession, or Tax Reform Code of 1971, and regulations in 61 PA. Code Pt. I subpt. B. Art. V (relating to personal income tax). The term does not include income which is not paid for services provided and which is in the nature of earnings from an investment.
For taxpayers engaged in the business, profession or activity of farming, the term shall not include:
- any interest earnings generated from any monetary accounts or investment instruments of the farming business;
- any gain on the sale of farm machinery;
- any gain on the sale of livestock held twelve months or more for draft, breeding or dairy purposes; and
- any gain on the sale of other capital assets of the farm.
What income is specifically exempt from the earned income tax?
Income such as dividends, interest, income from trusts, bonds, insurance proceeds and stocks (Schedule D) is exempt. Also exempt are payments for disability benefits, old age benefits, retirement pay, pensions (except payments deemed as Early Distributions), social security payments, public assistance or unemployment compensation payments made by any governmental agency, any wages or compensation paid by the United States for active service in the armed forces of the United States including bonuses or additional compensation for such service, supplemental unemployment compensation from employers or unions and clergy housing allowance.
Pennsylvania Personal Income Tax Guide (PIT) – Find out what is taxable and what is not taxable.
Active Duty Pay
There has been a change in the way Active Duty Military pay is taxed for 2012—this is per ACT 32 guidelines:
- 2016 and forward: Active duty military pay is exempt from taxation regardless of where it was earned.
- 2012-2015: Active duty military pay is taxable if earned in PA. If military pay is earned outside of PA, it is not taxable.
- 2011 and prior: Active duty military pay is exempt from taxation regardless of where it was earned.
- If you have taken an Early Distribution (prior to age 59 ½ or via allowed exception) from a retirement account, the portion that is taxable to the Commonwealth of Pennsylvania, is also taxable for local purposes. Therefore the amount included in your PA-40 form on Line 1, as compensation, should be included locally and listed on line 1.
Out of State Tax Credits
There has been a change in the taxes to which Out of State Tax credits may be applied to taxes due for Tax Year 2012 and forward. The change is per ACT 32 guidelines:
- Out of State Credits for 2012 through 2017— May only be applied on the ACT 511 tax rate (normally 1%) levied by your municipality/school district. The credit may not be applied to taxes levied for the Acquisition of Open Space (ACT 153) and/or the elimination of an Occupational Assessment Tax (ACT 24/130). If you live in an area that levies either or both types of taxes, the rate which you may apply an Out of State Credit to is noted on the tax return.
- Out of State Credits for 2011 and prior and 2018 and forward— May be applied to the full tax rate levied by your municipality/school district, except in school district’s that have levied a tax under ACT 1 of 2007. If you live in an area that levies an ACT 1 tax, the rate which you may apply an Out of State Credit to is noted on the tax return.
If the tax is withheld in another PA community where I work, do I also pay the PA District in which I live?
No. Generally the tax withheld by your employer will be remitted to your resident jurisdiction. However, you are still required to file an annual tax return with your resident taxing jurisdiction.
If I am subject to the Philadelphia wage tax, must I pay this tax?
No, but you are still required to file a final return. If employed in Philadelphia, you may use the Philadelphia Wage Tax as a credit against your liability to your resident jurisdiction, but the credit may not exceed your resident jurisdiction tax rate. No refund or credit can be taken for any withholding greater than the tax rate for your resident taxing jurisdiction. Philadelphia wage tax credits may not be applied to your spouse’s liability.
Please be advised that per a court decision passed down on 1/7/13, individuals who have City of Philadelphia Non-resident wage tax withheld may apply the taxes paid as credit against wages earned OUTSIDE the city as well. Refunds will not be issued for Philadelphia wage tax withheld in excess of the taxpayer’s liability. This decision returns the crediting provisions to how they were applied for tax year 2011 and prior.
Whose Earned Income Tax will be withheld by their employer?
As of 1st quarter of 2012 all employers who maintain a physical location in the Commonwealth of Pennsylvania are required to identify the higher of the 2 tax rates an employee may be subject to, either the employee’s resident tax rate or the work location’s non-resident tax rate and withhold at that rate and remit the taxes due at least quarterly.
Must all taxpayers file a final return?
Yes. If you live in a jurisdiction with an Earned Income tax in place and had wages for the year in question, a local earned income return must be filed annually by April 15, (unless the 15th falls on a Saturday or Sunday then the due date becomes the next business day) for the preceding calendar year. If you had no earned income, state the reason why on your final return.
What should I do if I lived in a jurisdiction/municipality for only part of the year?
You are required to file a return for any period of time you were/are a resident to a municipality for which Berkheimer is the tax administrator. You are required to file for the period of time you lived in that municipality and prorate your income, expenses, withholding, etc. Also you MUST complete the change of address section on your final return. Below is a formula you can use for prorating:
Total year’s income / 12 months or 365 days X length of time living in Jurisdiction = Income taxable to that jurisdiction (same formula can be used for withheld and expenses)
How can I update my information (name, address) with your company?
Click here to complete our online Individual File Maintenance form.
What documentation do I need to submit with the final return?
You should submit documentation which sufficiently supports the amount reported on each line of your return, including but not limited to, W-2s, State business reporting schedules, expense schedules, etc.
If you are claiming a credit for non-resident state income taxes paid to a non-reciprocating state, you must include a copy of that states return with your final in order to receive credit for taxes paid there that are in excess of the PA taxes due on the same taxable income. Refer to each line of the enclosed tax return and instructions for the specific form or schedule required. Photocopies are acceptable.
Where is my Earned Income reported on my W2?
Your local earned income should be reported in the box labeled “State Wages, tips, Etc.” (Please note: If the amount reported in the State box is substantially different than the amount reported as Medicare Wages, you should submit an explanation for this difference.) If this box is not completed, then you should refer to the box labeled “Medicare Wages.” Please note if you are employed out of state you should be referring to the box labeled “Medicare Wages.” Your local earned income tax withheld should be reported in the box labeled “Local Income Tax.”
What address do I send my return to?
If you or your spouse are expecting a refund/credit, please mail to:
PO Box 25160
Lehigh Valley, PA 18002
If you are making a payment, please mail to:
PO Box 25158
Lehigh Valley, PA 18002
If you or your spouse are expecting a refund/credit and making a payment please use the refund/credit address.
If you are not expecting a refund or making a payment, please mail to:
No Payment/No Refund
PO Box 25159
Lehigh Valley, PA 18002
Who should I make my check payable to?
For the local earned income tax all checks should be made payable to HAB-EIT.
How can I find out what jurisdiction my address is located in?
If you need to locate what jurisdiction you are residing in, please click here.
Where can I locate the tax rate or PSD Code for a specific jurisdiction?
If you need information on tax rates and PSD Codes, please click here.
Can I file an extension for the Local Earned Income Tax?
If you file a Federal or State Application for Extension, send us a copy along with estimated payment or file your extension online by April 15th.
How can I file an amended return?
You can download a blank final return by clicking here. Write AMENDED RETURN on the top of the return and fill out the form with the corrected information. Please submit all supporting documentation with your amended return.
My employer is located in an area with a distressed tax. Am I entitled to a refund?
Some taxing jurisdictions have a distressed tax (Act 205 or Act 47) that is imposed on both residents of that jurisdiction and non-residents employed within that jurisdiction. If the additional earned income tax imposed exceeds the earned income tax rate due your resident municipality/school district under Act 511, that portion of the tax is not refundable; rather, it remains within the township or borough which has enacted the distressed tax.